Funds’ advice ‘variable and sporadic’, says super expert

Support for pre-retirees needs urgent reform, says Rice Warner.

Funds’ advice ‘variable and sporadic’, says super expert

Financial services consultancy firm Rice Warner says that support from the superannuation industry for people approaching retirement needs urgent reform because it is “variable and sporadic”.

Analysis of the current state of the sector released yesterday said that while the industry does not want more change, the establishment of default retirement products and a simplified means of delivering financial advice are critical – and that the time to start is now.

“During the Federal Election, the Coalition promised not to make any changes to superannuation in the term of the new parliament, [but] … the industry still must deal with the Protecting Your Super Package and the enhanced requirements of APRA’s [Australian Prudential Regulation Authority] new Member Outcomes regime. Further, the Government will consider and, for the most part, implement the recommendations of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry.”

Rice Warner says super funds’ “engagement and financial advice for these members is variable and sporadic” and that the path to retirement is clouded by the need for information and advice for members facing complex issues.

The firm is critical of some fund calculators that purport to indicate a member’s expected income in retirement, saying they should only be considered as a crude guideline. It says funds can add real value when members first start thinking about retirement.

“More than two-thirds of members will be married, so they also need to consider their combined financial situation and likely timing of their partner retiring. They should be told of the need to protect themselves against sequencing, longevity and investment risks – but are unlikely to be equipped to deal with these issues. 

“Even a simple decision such as how much monthly benefit to draw is difficult as they cannot be sure how long their money will last. This will depend on unknown factors, including how long they live, how much they need to budget and what investment earnings they will receive in retirement.

“For many, the Age Pension will be the greater part of their retirement income and the rules around that are complex too, with an income and assets test, and a history of government changes in means testing rules.

“Members may want a lump sum at retirement to pay off debt or perhaps for home renovations or a holiday reward. Some members will continue working part-time to supplement their pension benefit, but they may be confused by the complexity around eligibility for the Age Pension, which affects most retirees.

“Clearly, members require guidance and it makes sense for their superannuation fund to provide this, particularly if they are delivering the required pension product.”

It says that uncertainty about the future causes many retirees to be conservative in their spending.

The graph above shows that most retirees draw modest amounts from their pension each year. The majority of those who have been retired for more than 10 years still draw no more than six per cent of their balance as pension payments.

“The Government hopes this frugality will be overcome by Comprehensive Income Products in Retirement (CIPRs), which are scheduled to be launched from July 2022. However, these products will be voluntary for members and we expect the take-up rate to be low if CIPRs are implemented in the form that is currently proposed.”

However, Rice Warner cautions that it would be dangerous for funds with a large proportion of their membership approaching retirement to wait for future products to be defined by the CIPR framework. It says funds must prioritise the building of retirement products and decision-making resources focused on outcomes for members.

Did you find it difficult to understand how your retirement would be financed in the preceding years? Did you seek advice from your super fund? Was it helpful?

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    COMMENTS

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    Buggsie
    24th May 2019
    10:47am
    My wife of 77 years has just taken all of her money out of her super retirement fund and is reinvesting elsewhere. Her fund, a major retail fund, has not earned any real returns for years and fees are excessive. We have formed the opinion that the only people who benefit from retail funds are the owners and managers on high salaries and ongoing commissions. She would have considered reinvesting in one of the higher earning industry funds but with the reelection of the LNP government fears that the government attacks on the management of these funds will continue. Her point is that the industry funds with their higher returns are an embarrassment to Morrison's mates in the retail funds industry and his government's irrational attacks will only increase. At least my wife now controls her own money and our tax situation will remain as is.

    24th May 2019
    11:36am
    There is a disclaimer given that past earnings are not an indication of future returns. Because of this I find it difficult for any super fund to predict the future. All any of us really know is the past and we hope that the future will be kind to us.

    As to the questions, we were given advice on how the super fund invested members' funds on a broad brush outline and the four strategies that we could choose. When asked about the different strategies, the adviser was quite clear on how they worked and the pros and cons. We were also advised as to which strategy is best for those still employed and what could be the strategy when retired. We found it helpful.
    pedro the swift
    24th May 2019
    11:46am
    I tend to agree with you Buggsie! Now we have scomo and his mob back they will do their damnest to do something to control industry funds cos they don't have their retail mates getting any returns from them. The rubbish about "union thugs' having control over the industry funds is just nonsense fed out by the murderdoc press along with all the other lies.
    Old Geezer
    24th May 2019
    12:59pm
    Industry funds need fixing as they are a law unto themselves. The only funds I have problems with are industry funds.
    Karl Marx
    24th May 2019
    1:20pm
    So OG you've never had any dealings with the corrupt, overcharging, overrated, overpaid, underperforming retails funds. lol
    Karl Marx
    24th May 2019
    1:23pm
    I'm sure pedro the swift that the LNP would love to get their grubby, greasy, corrupt little hands on industry funds, especially after the RC that showed up their mates in the retail funds as underperforming, grossly overpaid, corrupt bastards
    johnp
    24th May 2019
    1:49pm
    I dont know what world OG lives in but its certainlynot this one !! Its proven that industry funds outperform the retail ones !!
    Tom Tank
    24th May 2019
    1:50pm
    Old Geezer strikes again with a rant against anything that is remotely to the political left of Ghengis Khan.
    Industry Funds are obliged to follow the same rules and regulations as retail funds. They simply don't rip off their customers the way the "for profit to shareholders" i.e. banks etc do. Perhaps that is why you have such a hatred of Industry Funds.
    My wife and I had financial advice, recommended by an Industry Fund, for which we paid upfront, no commissions involved, and received advice that has worked well for us for a number of years now.
    Tom Tank
    24th May 2019
    1:50pm
    Old Geezer strikes again with a rant against anything that is remotely to the political left of Ghengis Khan.
    Industry Funds are obliged to follow the same rules and regulations as retail funds. They simply don't rip off their customers the way the "for profit to shareholders" i.e. banks etc do. Perhaps that is why you have such a hatred of Industry Funds.
    My wife and I had financial advice, recommended by an Industry Fund, for which we paid upfront, no commissions involved, and received advice that has worked well for us for a number of years now.
    Not a Bludger
    24th May 2019
    2:54pm
    So, pedro the swift, a fellow called Setka is not a union thug despite pleading guilty to same - yet he is closely associated with CBus - but there you are - nothing to be seen here, at least by you.
    The courts, given the $millions in fines levied on the CFMMEU for criminal actions, obviously think otherwise.
    Not a Bludger
    24th May 2019
    1:20pm
    My view on this is that no organisation such as super funds (Industry funds in particular) would give advice that is other than in their best interests - and it is foolish to think otherwise.
    Please note that this is not a criticism per se but a statement of reality.
    What a retiree needs for personal advice is the tried and true recipe - a good accountant together with, when necessary, a long term lawyer both of whom have a good knowledge of ones’ circumstances and both of whom charge a fee for their expertise.
    Above all, though, advise is no more and no less than advise - always best to hear advise and then make your own decisions.
    Karl Marx
    24th May 2019
    1:24pm
    here we go again yawn.
    KSS
    24th May 2019
    1:56pm
    Zzz_zzzz.. Yep. Zzzzzzz
    Buggsie
    24th May 2019
    4:14pm
    I'm not suggesting that retail funds have criminal intentions, just that they are run in the interests of managers etc, not clients. Nor am I suggesting that industry funds are perfect, just that many are better performers when assessed objectively on net returns. Unions don't control industry funds, despite ScoMos bullshit to the contrary. Management of each industry fund consists of a board of directors with equal union/ employer representation. The only funds going from industry super funds to unions are the fees paid to union board members which are usually donated to the union which selects them. Ignorance of the facts is no excuse, deliberate bullshit from the LNP is another matter.
    Karl Marx
    24th May 2019
    5:50pm
    Problem is Buggsie that bullshit will always cloud the real issue and has been seen of late a lot of people can't see tne realatity from the bullshit that is constantly spun by the LNP.
    ex PS
    24th May 2019
    7:58pm
    I don't think Unions control Industry FUNDS, but I also think that a fund controlled by a "Union Thug" that makes me money is still better than a fund controlled by a crooked banker or politician that costs me money.

    ,
    Karl Marx
    24th May 2019
    10:20pm
    If the unions are ever found to be doing wrong, underperforming, overchatging then I bet the LNP will be very quick to come down on these so called thugs. But if it's there overpaid mates doing tbe sam tbing which they have already been caught doing then the LNP will just brush it to one side, that's why not one banking or retail superfund official has been charged & brought to justice.
    simo60
    25th May 2019
    12:08pm
    Industry super funds are not controlled by the unions . There accounts and book audited every year . They are also opened to the public with full disclosure. ATO records show only 25% of SMSF make a return . Investor beware. Ask questions , it is not rocket science.
    GeorgeM
    25th May 2019
    11:55pm
    Here we go again - one of these "sporadic" attempts to promote the Govt's idea of CIPRs - to get people to spend their super faster with low-return products for the benefit of these Super funds! Meant to be voluntary!

    All must remember this promise from the Morrison team - "During the Federal Election, the Coalition promised not to make any changes to superannuation in the term of the new parliament".
    Cowboy Jim
    26th May 2019
    5:34pm
    Took all money out of super when reaching 65. They know everything you got in there so there is no problem taking it out and invest it elsewhere. Since your franking credits are safe you might as well go there again for the next 3 years but then Albo might not be stupid like old Billy Short-on was.


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